SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter Ended: June 30, 1998
Commission file number: 0-14090
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer as Specified in its Charter)
State of Delaware 41-6273958
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes [X] No
Transitional Small Business Disclosure Format:
Yes No [X]
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Item 1. Balance Sheet as of June 30, 1998 and December 31, 1997
Statements for the Periods ended June 30, 1998 and 1997:
Income
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
Item 2. Management's Discussion and Analysis
PART II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
BALANCE SHEET
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 195,768 $ 382,424
Receivables 0 9,996
----------- -----------
Total Current Assets 195,768 392,420
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,585,834 1,721,594
Buildings and Equipment 1,876,850 2,520,986
Accumulated Depreciation (754,478) (1,103,640)
----------- -----------
2,708,206 3,138,940
Real Estate Held for Sale 27,003 27,003
----------- -----------
Net Investments in Real Estate 2,735,209 3,165,943
----------- -----------
Total Assets $ 2,930,977 $ 3,558,363
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 23,159 $ 20,597
Distributions Payable 62,296 78,588
Security Deposit 5,000 5,000
----------- -----------
Total Current Liabilities 90,455 104,185
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (34,748) (28,611)
Limited Partners, $1,000 Unit value;
7,500 Units authorized and issued;
7,104 Units outstanding 2,875,270 3,482,789
----------- -----------
Total Partners' Capital 2,840,522 3,454,178
----------- -----------
Total Liabilities and Partners' Capital $ 2,930,977 $ 3,558,363
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
INCOME:
Rent $ 98,538 $ 122,280 $ 212,527 $ 248,386
Investment Income 5,143 4,360 16,033 8,174
---------- ---------- ---------- ----------
Total Income 103,681 126,640 228,560 256,560
---------- ---------- ---------- ----------
EXPENSES:
Partnership Administration-
Affiliates 29,219 29,323 58,745 49,343
Partnership Administration
and Property Management -
Unrelated Parties 6,077 7,060 12,181 12,181
Depreciation 14,189 27,061 30,075 54,123
---------- ---------- ---------- ----------
Total Expenses 49,485 63,444 101,001 115,647
---------- ---------- ---------- ----------
OPERATING INCOME 54,196 63,196 127,559 140,913
GAIN ON SALE OF REAL ESTATE 0 0 554,742 0
---------- ---------- ---------- ----------
NET INCOME $ 54,196 $ 63,196 $ 682,301 $ 140,913
========== ========== ========== ==========
NET INCOME ALLOCATED:
General Partners $ 542 $ 632 $ 6,823 $ 1,409
Limited Partners 53,654 62,564 675,478 139,504
---------- ---------- ---------- ----------
$ 54,196 $ 63,196 $ 682,301 $ 140,913
========== ========== ========== ==========
NET INCOME PER
LIMITED PARTNERSHIP UNIT
(7,104 and 7,120 weighted average
Units outstanding in 1998 and 1997,
respectively) $ 7.55 $ 8.78 $ 95.08 $ 19.59
========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 682,301 $ 140,913
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 30,075 54,123
Gain on Sale of Real Estate (554,742) 0
Decrease in Receivables 9,996 0
Increase in Payable to
AEI Fund Management, Inc. 2,562 19,604
----------- -----------
Total Adjustments (512,109) 73,727
----------- -----------
Net Cash Provided By
Operating Activities 170,192 214,640
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate 955,401 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in Distributions Payable (16,292) (5)
Distributions to Partners (1,295,957) (158,331)
----------- -----------
Net Cash Used For
Financing Activities (1,312,249) (158,336)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (186,656) 56,304
CASH AND CASH EQUIVALENTS, beginning of period 382,424 283,939
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 195,768 $ 340,243
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1996 $ (28,653) $ 3,478,638 $ 3,449,985 7,120.32
Distributions (1,583) (156,748) (158,331)
Net Income 1,409 139,504 140,913
--------- ----------- ----------- ----------
BALANCE, June 30, 1997 $ (28,827) $ 3,461,394 $ 3,432,567 7,120.32
========= =========== =========== ==========
BALANCE, December 31, 1997 $ (28,611) $ 3,482,789 $ 3,454,178 7,104.32
Distributions (12,960) (1,282,997) (1,295,957)
Net Income 6,823 675,478 682,301
--------- ----------- ----------- ----------
BALANCE, June 30, 1998 $ (34,748) $ 2,875,270 $ 2,840,522 7,104.32
========= =========== =========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Real Estate Fund 86-A Limited Partnership (Partnership)
was formed to acquire and lease commercial properties to
operating tenants. The Partnership's operations are managed
by AEI Fund Management 86-A, Inc. (AFM), the Managing
General Partner of the Partnership. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the
Individual General Partner of the Partnership. An affiliate
of AFM, AEI Fund Management, Inc. (AEI), performs the
administrative and operating functions for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. The Partnership
commenced operations on April 2, 1986 when minimum
subscriptions of 1,300 Limited Partnership Units
($1,300,000) were accepted. The Partnership's offering
terminated on July 9, 1986 when the maximum subscription
limit of 7,500 Limited Partnership Units ($7,500,000) was
reached.
Under the terms of the Limited Partnership Agreement, the
Limited Partners and General Partners contributed funds of
$7,500,000 and $1,000, respectively. During the operation
of the Partnership, any Net Cash Flow, as defined, which the
General Partners determine to distribute will be distributed
90% to the Limited Partners and 10% to the General Partners;
provided, however, that such distributions to the General
Partners will be subordinated to the Limited Partners first
receiving an annual, noncumulative distribution of Net Cash
Flow equal to 10% of their Adjusted Capital Contribution, as
defined, and, provided further, that in no event will the
General Partners receive less than 1% of such Net Cash Flow
per annum. Distributions to Limited Partners will be made
pro rata by Units.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's properties which the General
Partners determine to distribute will, after provisions for
debts and reserves, be paid in the following manner: (i)
first, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners receive an amount equal
to: (a) their Adjusted Capital Contribution plus (b) an
amount equal to 6% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) next, 99% to
the Limited Partners and 1% to the General Partners until
the Limited Partners receive an amount equal to 14% of their
Adjusted Capital Contribution per annum, cumulative but not
compounded, to the extent not previously distributed; (iii)
next, to the General Partners until cumulative distributions
to the General Partners under Items (ii) and (iii) equal 15%
of cumulative distributions to all Partners under Items (ii)
and (iii). Any remaining balance will be distributed 85% to
the Limited Partners and 15% to the General Partners.
Distributions to the Limited Partners will be made pro rata
by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed to
the Partners for such year. Any additional profits will be
allocated 90% to the Limited Partners and 10% to the General
Partners. In the event no Net Cash Flow is distributed to
the Limited Partners, 90% of each item of Partnership
income, gain or credit for each respective year shall be
allocated to the Limited Partners, and 10% of each such item
shall be allocated to the General Partners. Net losses from
operations will be allocated 98% to the Limited Partners and
2% to the General Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's property will be
allocated in accordance with the Partnership Agreement as
follows: (i) first, to those Partners with deficit balances
in their capital accounts in an amount equal to the sum of
such deficit balances; (ii) second, 99% to the Limited
Partners and 1% to the General Partners until the aggregate
balance in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital Contributions
plus an amount equal to 14% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, to the
General Partners until cumulative allocations to the General
Partners equal 15% of cumulative allocations. Any remaining
balance will be allocated 85% to the Limited Partners and
15% to the General Partners. Losses will be allocated 98%
to the Limited Partners and 2% to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the Partnership
or withdrawal by a General Partner, the General Partners
will contribute to the Partnership an amount equal to the
lesser of the deficit balances in their capital accounts or
1% of total Limited Partners' and General Partners' capital
contributions.
AEI REAL ESTATE FUND 86-A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate -
On February 20, 1998, the Partnership sold the am/pm Mini
Market in Carson City, Nevada to an unrelated third party.
The Partnership received net sale proceeds of $955,401,
which resulted in a net gain of $554,742. At the time of
sale, the cost and related accumulated depreciation of the
property was $779,896 and $379,237, respectively.
In April, 1998, the Partnership distributed $1,141,414 of
net sale proceeds to the Limited and General Partners, which
represented a return of capital of $159.06 per Limited
Partnership Unit.
The Partnership owns a 6.7522% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the Sizzler's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurants in a manner capable of maximizing the
restaurant's sales. Consequently, at the direction of the
Partnership, a multi-unit restaurant operator assumed
operation of this restaurant while the Partnership reviewed
the available options. In June, 1994, the Partnership
closed the restaurant and listed it for sale or lease.
While the property was vacant, the Partnership was
responsible for the real estate taxes and other costs
required to maintain the property.
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-
lease the property. As a result, the property has been
reclassified on the balance sheet to Real Estate Held for
Sale. In addition, based on an analysis of market
conditions in the area, it was determined that a sale of the
property would result in net proceeds of approximately
$400,000. The Partnership's share of the proceeds would be
approximately $27,000. A charge to operations for real
estate impairment of $45,500 was recognized, which is the
difference between book value at December 31, 1996 of
$72,500 and the estimated market value of $27,000. The
charge was recorded against the cost of the land, building
and equipment. The Partnership's investment in this
property represents a minor portion of the Partnership's
portfolio. The loss of rent and the real estate impairment
related to this property have not had a material impact on
the Partnership's Net Cash Flow.
On July 21, 1998, the Partnership sold the Sizzler property
to an unrelated third party. The Partnership received net
sale proceeds of approximately $25,000, which resulted in a
net loss on the sale of approximately $2,000.
(4) Payable to AEI Fund Management -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
For the six months ended June 30, 1998 and 1997, the
Partnership recognized rental income of $212,527 and $248,386,
respectively. During the same periods, the Partnership earned
investment income of $16,033 and $8,174, respectively. In 1998,
rental income decreased mainly as a result of the sale of the
am/pm property discussed below. The decrease in rental income
was partially offset by additional investment income earned on
the net proceeds from the property sale.
The Partnership owns a 6.7522% interest in a Sizzler
restaurant in Springboro, Ohio. In November, 1993, after
reviewing the Sizzler's operating results, the Partnership
determined that the lessee would be unable to operate the
restaurants in a manner capable of maximizing the restaurant's
sales. Consequently, at the direction of the Partnership, a
multi-unit restaurant operator assumed operation of this
restaurant while the Partnership reviewed the available options.
In June, 1994, the Partnership closed the restaurant and listed
it for sale or lease. While the property was vacant, the
Partnership was responsible for the real estate taxes and other
costs required to maintain the property.
In December, 1996, the Partnership, in order to avoid
additional property management expenses, decided to sell the
Sizzler property rather than to continue to attempt to re-lease
the property. As a result, the property has been reclassified on
the balance sheet to Real Estate Held for Sale. In addition,
based on an analysis of market conditions in the area, it was
determined that a sale of the property would result in net
proceeds of approximately $400,000. The Partnership's share of
the proceeds would be approximately $27,000. A charge to
operations for real estate impairment of $45,500 was recognized,
which is the difference between book value at December 31, 1996
of $72,500 and the estimated market value of $27,000. The charge
was recorded against the cost of the land, building and
equipment. The Partnership's investment in this property
represents a minor portion of the Partnership's portfolio. The
loss of rent and the real estate impairment related to this
property have not had a material impact on the Partnership's Net
Cash Flow.
On July 21, 1998, the Partnership sold the Sizzler
property to an unrelated third party. The Partnership received
net sale proceeds of approximately $25,000, which resulted in a
net loss on the sale of approximately $2,000.
During the six months ended June 30, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $58,745 and $49,343, respectively. These
administration expenses include costs associated with the
management of the properties, processing distributions, reporting
requirements and correspondence to the Limited Partners. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $12,181 and $12,181, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, taxes, insurance and other property costs.
As of June 30, 1998, the Partnership's annualized cash
distribution rate was 6.5%, based on the Adjusted Capital
Contribution. Distributions of Net Cash Flow to the General
Partners were subordinated to the Limited Partners as required in
the Partnership Agreement. As a result, 99% of distributions and
income were allocated to Limited Partners and 1% to the General
Partners.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Inflation has had a minimal effect on income from
operations. It is expected that increases in sales volumes of
the tenants, due to inflation and real sales growth, will result
in an increase in rental income over the term of the leases.
Inflation also may cause the Partnership's real estate to
appreciate in value. However, inflation and changing prices may
also have an adverse impact on the operating margins of the
properties' tenants which could impair their ability to pay rent
and subsequently reduce the Partnership's Net Cash Flow available
for distributions.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
During the six months ended June 30, 1998, the
Partnership's cash balances decreased $186,656 as the Partnership
distributed more cash to the Partners than it generated for
operating and investing activities. Net cash provided by
operating activities decreased from $214,640 in 1997 to $170,192
in 1998 mainly as a result of a decrease in income and an
increase in expenses in 1998.
Net cash provided by investing activities was $955,401 in
1998, which represented cash generated from the sale of real
estate.
On February 20, 1998, the Partnership sold the am/pm Mini
Market in Carson City, Nevada to an unrelated third party. The
Partnership received net sale proceeds of $955,401, which
resulted in a net gain of $554,742. At the time of sale, the
cost and related accumulated depreciation of the property was
$779,896 and $379,237, respectively.
The Partnership's primary use of cash flow is distribution
and redemption payments to Partners. The Partnership declares
its regular quarterly distributions before the end of each
quarter and pays the distribution in the first week after the end
of each quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter. Redemption payments
are paid to redeeming Partners in the fourth quarter of each
year. Effective July 1, 1997, the Partnership's distribution
rate was increased from 6.0% to 6.5%. In April, 1998, the
Partnership distributed $1,141,414 of net sale proceeds to the
Limited and General Partners as a special distribution, which
represented a return of capital of $159.06 per Limited
Partnership Unit. As a result, distributions during the first
six months of 1998 were higher when compared to the same period
in 1997.
The Partnership may purchase Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the total number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During 1997, three Limited Partners redeemed a total of 16
Partnership Units for $5,213 in accordance with the Partnership
Agreement. The Partnership acquired these Units using Net Cash
Flow from operations. In prior years, a total of fifty-six
Limited Partners redeemed 379.75 Partnership Units for $272,455.
The redemptions increase the remaining Limited Partners'
ownership interest in the Partnership.
The continuing rent payments from the properties, together
with cash generated from property sales, should be adequate to
fund continuing distributions and meet other Partnership
obligations on both a short-term and long-term basis.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Partnership is a party or of which the Partnership's
property is subject.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -
Description
27 Financial Data Schedule for period
ended June 30, 1998.
b. Reports filed on Form 8-K - None.
SIGNATURES
In accordance with the requirements of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: July 31, 1998 AEI Real Estate Fund 86-A
Limited Partnership
By: AEI Fund Management 86-A, Inc.
Its: Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson
President
(Principal Executive Officer)
By: /s/ Mark E Larson
Mark E. Larson
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000785788
<NAME> AEI REAL ESTATE FUND 86-A LTD PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 195,768
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 195,768
<PP&E> 3,506,281
<DEPRECIATION> (771,072)
<TOTAL-ASSETS> 2,930,977
<CURRENT-LIABILITIES> 90,455
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,840,522
<TOTAL-LIABILITY-AND-EQUITY> 2,930,977
<SALES> 0
<TOTAL-REVENUES> 228,560
<CGS> 0
<TOTAL-COSTS> 101,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 682,301
<INCOME-TAX> 0
<INCOME-CONTINUING> 682,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 682,301
<EPS-PRIMARY> 95.08
<EPS-DILUTED> 95.08
</TABLE>
